Watch the money, not the stock trading at E*Trade Financial (ET ). Shares of E*Trade, a provider of online brokerage and banking services, have languished around 12 this year, because investors have been disappointed at weak trading and stiff competition. ``But investors should focus on its banking, which is growing fast,'' says Ed Hemmelgarn of Shaker Investments, which owns shares. In two years, banking revenues have surpassed broker fees, he notes. Campbell Chaney of investment firm Sanders Morris Harris, who rates the stock a strong buy, says key factors are the assets and de-posits in client accounts, which totaled $97 billion in February, up 2% from $95.2 billion in January. E*Trade's new business model depends less on broker-age, he notes. It is able to ``sweep client assets from the broker to the bank,'' he says. Its ``Optimizer'' plan advises clients on maximizing gains from investments. Mortgage and home-equity lending have been on a tear. Home-equity loans jumped 33% from January to February. Chaney forecasts net of $1 in 2005 and $1.15 in 2006, up from 2004's 94 cents. He sees E*Trade at 20 in a year.
Note: Unless otherwise noted, neither the sources cited in Inside Wall Street nor their firms hold positions in the stocks under discussion. Similarly, they have no investment banking or other financial relationships with them.
By Gene G. Marcial